Retiring Workers Face Pension Cuts

Workers retiring next month could force lifetime pensions cuts of from $300 to $2,500 a year if Congress adopts a cost-of-living (COL) formula change that is now before the House.

Under orders from the White House and Senate and House budget committees, Congress is moving to make major savings in federal-military retirement costs. The plan is to reduce the COL increases retirees now get every six months to a single annual inflation catch-up.

There are 100,000 federal and military retirees in metropolitan Washington who depend on the March and September adjustments to help them keep pace with rising living costs.

In an attempt to save the two COL raises from being eliminated permanently the Senate Governmental Affairs Committee and the House Post Office and Civil Service Committee have come up with a compromise: a one-time COL cutback.

Instead of making the cutback permanent, the Senate unit voted to drop the COL raise for this September only. The old system, with two annual increases, would be resumed next March.

The House committee voted to give retirees the September raise due them, but drop the boost next March. The two annual raises would be resumed in the fall of 1981.

The problem, for people considering retirement, is that the House bill also would eliminate "perks" that give new retirees a big financial break. Under the present system, retirees can take advantage of the last COL increase before they retire, and also get the full amount of the next COL increase, even if they quit one day before it becomes effective.

The House plan, backed by the Carter Administration, would eliminate the "look back" feature, and base the amount of the first COL raise on how long the individual had actually been retired.

Under the House committee plan, for example, you could not retire this Aug. 31 and get the full amount of the COL increase that goes into effect Sept. 1. Under the current law, you could.

Eliminating "look back" and imposing prorating on future retirees would reduce the annuity they could expect.

Here is a set of figures showing the current annunity due a hypohetical employe, and the amount that annunity would be reduced if the House plan prevails in the Senate-House conference coming up. Assume that the imaginary employe wants to retire this August, that he or she has 30 years service, and that his/her "high-three" salary for retirement purposes is one of the following:

With a high-three salary of $10,000, the Aug. 31 retiree would, under the current system, get an annual (before taxes) annuity of $6,320. If the House bill becomes law, that annuity would drop to $6,011.

The $20,000 retiree would get $12,640 under current law. If the look-back provision is dropped, the prorating added, the annual annuity would be $12,023. p

The $30,000 retiree now would get $18,961. If the computation changes proposed by the House are made, the annual annuity would be $18,034 beginning in September.

Persons retiring on a high-three salary of $40,000 would get $25,281 in annuity now, or $24,045 under the House bill.

Those retiring with the high-three of $47,862 would get $30,250 under the present law, but $27,651 if the rules are changed by the House.

There is a good argument to be made for eliminating the "look-back" benefit.

And for prorating the first COL raised based on the time an individual is actually retired. The two benefits are a bit like having one's cake and eating it too, twice.

But it does seem unfair to change the rules in the middle of the game. If Congress does go along with dropping the two retirement perks, it ought to make the change effective at some future date, so people who had planned to retire next month -- based on current law -- can do it without suffering a loss.

Who knows. It might even encourage some longtime members of Congress to retire early to get the breaks they put into the law in the first place.